Making - Emory Goizueta Business School Intranet

Making
Judgment Calls
The ultimate act of leadership
A
by Noel M. Tichy and Warren G. Bennis
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Daniel Chang
LEADER’S MOST IMPORTANT ROLE in any organization
is making good judgments – well-informed, wise decisions
that produce the desired outcomes. When a leader shows consistently good judgment, little else matters. When he or she
shows poor judgment, nothing else matters. Of course, it isn’t
humanly possible to make the right call every single time. But
the most effective leaders make a high percentage of successful judgment calls, at the times when it counts the most.
Over the course of our lives, each one of us makes thousands of judgment calls. Some are trivial, such as what kind of
cereal to buy; some are monumental, such as whom to marry.
Our ability to make the right calls has an obvious impact on
the quality of our own lives; for leaders, the significance and
consequences of judgment calls are magnified exponentially,
because they influence the lives and livelihoods of others. In
the end, it is a leader’s judgment that determines an organization’s success or failure. On a more personal level, it is the sum
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Making Judgment Calls
of a leader’s judgment calls that will deliver the verdict on
his or her career – and life.
Yet the notion of judgment is a fairly murky one. The leadership literature has been conspicuously quiet on the topic,
and we believe that’s because good judgment is hard to pin
down. What, exactly, is it? Does it differ from common sense
or gut instinct? Is it a product of luck? Of smarts? We wanted
to find out, so we reflected on the countless judgment calls
we’ve witnessed during our combined 100-plus years of experience. We conducted formal surveys and interviews on
judgment, and we collected numerous stories through casual
conversations.
Our first finding, which focused our thinking on the topic,
was that most of a leader’s important calls reside in one of three
domains: people, strategy, or crisis. People judgments – getting the right people on your team and developing up-andcomers who themselves demonstrate good judgment – are
foundational. The people around you help you make good
strategy judgment calls and the best decisions during the
And third is execution – making it happen while learning
and adjusting along the way. Leaders may not be able to
change their calls, but they can almost always change course
during execution if they are open to feedback and committed to follow-through.
Indeed, good leaders take advantage of “redo loops,”
which can occur throughout the process. For instance, if you
run into resistance when you’re trying to mobilize and align
your team during the preparation phase, you may be able to
pinpoint an error in framing the issue. If you recognize judgment as a process, you have a chance to go back and correct
the framing before you move on to the call, greatly improving the odds of success. If, instead, you treat a judgment call
as an event – you make a decision and then plunge on to
the next – you’re bound to fail at execution because you
don’t have the necessary support.
Former Hewlett-Packard CEO Carly Fiorina had a vision
and was not afraid to make decisions, but she repeatedly
showed poor judgment when it came to people. Moreover,
she seemed to focus on the moment of
the call, paying inadequate attention to
the challenges of preparation and execution – at least when it came to her strategic judgment call to acquire Compaq. She
hadn’t built a team of people who were energized by her vision, so she couldn’t make
it through the execution phase – and a
judgment that is not successfully executed
is a failed judgment no matter how smart the strategy. At
no point in the process did Fiorina take advantage of a redo
loop to go back and gain support for her call.
Of course, a flawed judgment process was not the sole
cause of Fiorina’s downfall. HP’s board showed poor
judgment in hiring Fiorina for a job for which she was ill
suited – not because she isn’t intelligent and credentialed
but because her background in sales didn’t equip her to run
a large, multidimensional portfolio of businesses.
After Fiorina was fired, in 2005, her successor, Mark Hurd,
walked into a distressed enterprise and, with almost no
change to her strategic portfolio, turned Fiorina’s dismal
failure into a roaring success. Even though Hurd, like his predecessor, laid off a large number of workers, he focused on
fundamentals rather than seeking the limelight (Fiorina’s
strength) and had the background to address the company’s
operational priorities. He was a much better choice on the
part of the board.
Judgment may seem like an ineffable quality, but in this
article we will attempt to move the conversation forward,
to create some clarity about what we have come to believe
is the essence of leadership. We’ll start with a look at the
concept of leadership story lines, which good leaders use
to inform their actions in all three phases of the judgment
process.
A judgment that is not successfully
executed is a failed judgment no matter
how smart the strategy.
occasional but inevitable crisis. It’s sometimes possible to
repair the damage – to a company or a career – that results
from misjudgments about strategy or crises, but it is almost
impossible to recover from poor people judgment.
Our second finding was that judgment doesn’t occur in
a single moment but grows out of a process. Leaders who
regularly demonstrate good judgment aren’t just having a
series of terrific (or lucky) “aha” moments. Like umpires and
referees, leaders do, at some point, make a call. But unlike
umpires and referees, they cannot quickly reject dissent and
move on. Rather, successful leaders make their calls in the
middle of a process that unfolds over three phases. First is
preparation, during which leaders sense and frame the issue that will demand a judgment call, and align their team
members so that everyone understands why the call is important. Second is the call itself – the moment of decision.
Noel M. Tichy ([email protected]) is a professor of management
and operations and the director of the Global Business Partnership at
the University of Michigan’s Ross School of Business in Ann Arbor.
Warren G. Bennis ([email protected]) is a university professor and a distinguished professor of business administration at the
University of Southern California’s Marshall School of Business in
Los Angeles. Their book Judgment: How Winning Leaders Make
Great Calls is forthcoming from Portfolio.
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The Phases of the Judgment Process
Leaders who demonstrate good judgment understand that judgment is a process,
not an event. It unfolds over three phases, each of which has its own challenges and
opportunities. One of the most important elements of the judgment process is what
we call the “redo loop” – the opportunity to go back and try again if you’ve skipped
a step or handled it poorly. Redo loops are built in at certain points in the process.
GOOD LEADER
PREPARATION PHASE
■
Picks up on signals
in the environment
■
Is energized about
the future
■
Cuts through complexity to get to the
essence of an issue
■
Sets clear
parameters
■
Sense and Identify
Provides a context
and establishes a
shared language
CALL PHASE
■
Identifies important
stakeholders
■
Makes a clear
yes/no call
■
Stays involved during execution
■
Asks for continuous feedback
■
Engages and
energizes
stakeholders
■
Thoroughly explains
the call
■
Supports others
who are involved
■
Listens to feedback
■
Makes adjustments
■
Frame and Name
Taps best ideas
from anywhere
Mobilize and Align
REDO
POOR LEADER
■
Call
Cannot read the
environment
■
Incorrectly frames
the issue
■
Does not set clear
expectations
■
Fails to acknowledge reality
■
Does not define the
ultimate goal
■
Brings the wrong
people on board
Does not follow gut
instincts
■
Remains stuck in an
old paradigm
■
Does not correct
previous mistakes
PREPARATION PHASE
The Leadership Story Line
By its very nature, a judgment call could lead to any of several
outcomes, so leaders need a context in which to make their
choices. This is different from vision and strategy, though it
combines elements of both. One way to create such a context
is to develop a story line that describes a company’s identity
and direction and contains three elements: an idea about
how to make the organization successful; an articulation
and reinforcement of the organization’s values; and a strategy for generating the energy needed to accomplish its goals.
When the need for a judgment arises, leaders can match the
possible consequences of a decision against the story line to
get a clear picture of what to do.
When Jim McNerney became CEO of Boeing, in July 2005,
he inherited a crisis. Boeing had been accused of acquiring thousands of pages of proprietary documents from rival
Lockheed Martin in the late 1990s; it had used some of them
to win contract work with the government. A few years later,
Make It Happen
Learn and Adjust
REDO
■
Dillydallies when
it’s time to make
a call
■
Fails to understand
how issues intersect and how the
call will play out
■
Walks away once
the call is made
■
Does not measure
outcomes
■
Does not gather important information
■
■
Does not understand what good
execution requires
Does not respond
to resistance in the
organization
■
Lacks operating
mechanisms to
make necessary
changes
CALL PHASE
EXECUTION PHASE
Boeing illegally recruited a senior U.S. Air Force procurement official while she still had authority over billions of
dollars of Boeing contracts. She helped Boeing skirt normal
competitive procedures to gain a $20 billion refueling tanker
program for the Air Force. Phil Condit, Boeing’s CEO at the
time, resigned; CFO Michael Sears was fired and served time
in prison.
In 2005, the board forced the resignation of Condit’s
successor, Harry Stonecipher, over another ethical issue.
McNerney joined a once-proud company with a tarnished
image, facing very serious charges from the U.S. Department
of Justice. He had been a member of the board, so he knew
well what he was up against. But he had a new story line for
Boeing, which was built around high integrity and trusting
partnerships with all stakeholders. A year after becoming
CEO, McNerney testified before the Senate Armed Services
Committee regarding his decision to pay $615 million to
put an end to three years of investigations into improper
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Sets clear
milestones
REDO
■
■
EXECUTION PHASE
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Making Judgment Calls
behavior of the company’s employees and senior executives;
it was the largest financial penalty ever imposed on a defense contractor for wrongdoing. Furthermore, he did not
take the tax deduction that Boeing legally could have for the
settlement, because he felt it would be unfair to taxpayers.
McNerney could have fought the allegations and dragged
out the investigations, and he could have underplayed the
importance of the matter and blamed former leaders. But
instead he drew on the new story line of a company that aspired to be a world-class model of competitiveness and ethical leadership – and made a judgment that turned the crisis
into an opportunity to transform Boeing’s internal culture
and leadership behaviors. He set a context for his company’s path forward, which he shared in his Senate testimony
on August 1, 2006: “This introspection set us on a course of
building one of the most robust ethics and compliance programs in corporate America. That is the lasting legacy – and
silver lining – of this dark cloud in our history.”
A story line is meaningless if it does not drive key judgments. The oil industry is no stranger to poor judgment calls
The Traditional View
Versus the Process View
(think Exxon Valdez), but in one case last year, John Browne,
BP’s CEO at the time, failed to stick to his story line, which
portrayed BP as a leader in environmental sustainability. In
the summer of 2006, poor maintenance resulted in oil spills
from BP’s pipeline, polluting Alaska’s Prudhoe Bay and the
surrounding environment. Within months of that crisis, an
explosion in the company’s Texas refinery killed 15 workers.
This led to a government-sponsored study headed by former
U.S. secretary of state James Baker; the study pointed to years
of cost cutting and poor maintenance. Clearly, Browne and
his team were not making day-to-day judgments that lived
up to the story line of an environmentally friendly company.
Preparing for the Call
The first phase of judgment, preparation, incorporates three
steps. First is to sense and identify the issue, which entails
reading early signals; second is to frame and name it, setting
clear parameters and providing a context; and third is to
mobilize and align key stakeholders, inviting their input and
harnessing their energy.
TRADITIONAL VIEW
Single moment, static
The distinction between leadership
judgment viewed traditionally and
judgment viewed as a process is
apparent across various characteristics.
CHARACTERISTIC
Time
Rational, analytic
Thought Process
Knowable, quantifiable
Top-down: The leader
makes the key decisions
Closed system in which
decision makers hold information and do not explain
their rationale
Unconsciously happens
through experience or luck;
reserved for top leadership
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Dynamic process that
unfolds
Rational and analytic but
also emotional and full of
human drama
Variables
Often outside of a leader’s
domain; may relate to the
call indirectly
Focus
Organizational: The leader
guides a process but is
influenced by many actors
and subsequent judgment
calls
Individual: A heroic leader
makes the tough call
Making the best decision on
the basis of known data
PROCESS VIEW
Success Criteria
Acting and reacting through
a judgment process that
guides others to a successful outcome
Actors
Top-down-up: Execution
influences how judgments
are reshaped
Transparency
Capability Building
Open process in which
mistakes are shared and
learning is used to make
adjustments
Deliberately encouraged
at all levels
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Good leaders make a habit of sensing, framing,
and aligning so that they are prepared for the call,
which can arise at any moment.
Good leaders make a habit of sensing, framing, and aligning so that they are prepared for the call, which can arise at
any moment, frequently without warning. This is particularly important in crisis situations; the likelihood of making
a good call is vastly increased if the call is made in the context of a story line.
One of the best ways to understand a crisis judgment call
is to observe an emergency room. Kathleen Gallo, the chief
learning officer at North Shore–Long Island Jewish Health
System, was the director of an emergency department in a
level 1 trauma center. She told us that with enough experience and preparation, crisis judgment calls can be handled
routinely. She said, “While the arrival of a helicopter with
a whole family of car-wreck victims might look like a crisis
and might be a crisis for the family, it is not a crisis for the
staff at LIJ because they are prepared. It is just another day
at work.” The staff develops a habit of using quiet moments
to prepare, scouting out free beds and ensuring that IVs and
other equipment are at the ready. They are constantly sensing and framing.
Like executives, triage nurses use story lines to guide their
calls. These story lines are based on medical knowledge as
well as values that help nurses apply that knowledge. One of
us was at the Harlem Hospital Center studying emergencyroom operations when a triage nurse quickly chose to keep
a feverish child and his parents waiting while mobilizing a
team to deal with an elderly man in cardiac arrest. That call
seemed like a purely intellectual decision; the fever wasn’t
life threatening. But then a trickier call arose: A pregnant
teenage girl came in with a gunshot wound, and the nurse
without hesitation pulled the team off the cardiac-arrest
patient and reassigned it to the pregnant girl. The old man
died; the girl and her baby survived. The nurse relied not
just on her medical diagnoses of the two patients but on her
values to make the call about who would get the limited
medical resources. Her story line led her to value the two
young lives over that of an elderly man who was probably
going to die anyway. Right or wrong, her judgment reflected
a clear (and relatively easy to defend) set of values. Having a
story line helps you frame your choices. It also allows you to
look for events that may be influenced by – or change – your
story. It may allow you to pick up on faint signals in the environment so that you can proactively make judgment calls
instead of being surprised.
Of course, triage nurses and other first responders make
lots of judgment calls during crises; they are trained to do
so. Most leadership judgment calls arise in calmer circumstances. Business decisions may in fact be more complex
than medical ones because the defining values are so diverse.
But normally, business leaders enjoy the luxury of more time,
so they arguably have no excuse for inadequate preparation,
especially for having no story line.
For example, look at a strategic judgment call by Jeff Immelt shortly after he took over at General Electric. He didn’t
have a burning platform because the company was in great
shape, but he knew that GE would have to change with a
changing world, and he was sufficiently astute to pin the
company’s growth to sustainability early on. That insight
fed his view that being a great company wasn’t enough: GE
needed to become more visible and active as a global corporate citizen. The September 11 terrorist attacks occurred
just days after Immelt took over, and they helped him solidify his story about GE as a more humane entity – not less
corporate, but compassionate and attuned to the spectrum
of stakeholder needs. As part of his vision, he explicated the
need for respectful treatment of GE employees now that
they had new fears for their safety: “When your number one
concern driving to work in the morning is, are you going to
open up an envelope with anthrax in it, can you imagine
combining that with working for an SOB?”
Such sentiments are easy to dismiss as platitudes, but Immelt doesn’t gloss over the business fundamentals. His developing story line led him to a business model whose key
elements are building infrastructure for developing countries, creating environmentally friendly products for both
developed and developing countries, and investing in health
care, all with a sharp focus on growing the company.
The redo loop in the preparation phase comes when
you discover that you can’t mobilize and align the organization – probably because you have not framed the issue
correctly or compellingly. Rather than digging in their heels,
good leaders go back and set the context before pushing on
to the call. They reconsider the parameters of the decision at
hand, relabel the problem if need be, and redefine the goal
in a way that people can accept.
Making the Call
The call phase of a judgment process is often as quick as the
flip of a switch. According to Immelt, he does a lot of consulting with others, and then, “Boom, I make the decision.”
And in fact, the call itself is where the traditional view of
judgment starts and ends. (See the exhibit “The Traditional
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View Versus the Process View.”) It’s true that at one instant,
a leader hasn’t chosen a course of action, and by the next,
he or she is in the execution phase. But this is exactly why
good preparation and execution are vital. It’s before and after the call that the leader has a chance to take a breath and
garner support.
There’s a redo loop between the end of the preparation
phase and the beginning of the call phase, when you may
get another chance to mobilize and align the organization
if you’ve failed to do so. Most leaders have a great deal of
difficulty taking advantage of this opportunity. Once you’ve
made a call, especially a tough one, it can feel irrelevant to
go back and invite input. But that redo loop can make all
the difference. In 2001, when A.G. Lafley took over a deeply
troubled Procter & Gamble, he had to make numerous judgment calls. Many of his first ones were people judgments,
and one in particular highlights the power of a story line
and of redo loops.
In his story line, Lafley famously identified consumers – not employees or shareholders – as the most important stakeholders, which gave him a framework for subsequent decisions. He quickly identified the problems that
most needed solving, chief among them a serious slump in
baby-care products, the company’s biggest category after
laundry. According to Lafley’s story line, the company was
failing to delight the consumer, and that was because, as he
put it, “the machine guys and the plant guys were running
the show – the machine was boss.” The people in charge
didn’t have a relationship with the consumer. Lafley then
made the tough call to find a leader who could connect
with the consumer, regardless of technical know-how. The
person he selected, Deb Henretta, had come up through
laundry and had no experience in baby care. She wasn’t
concerned with how the machines worked. What mattered
to her was understanding what the consumer wanted and
then making the machines produce that. She also had
Four Types of Knowledge
Guide Judgments
PEOPLE
Our study of the nature
of leadership judgment
showed us that most
judgment calls arise in the
domains of people, strategy,
and crisis. But our findings
included another facet to
judgment: multidimensional
wisdom that allows a leader
to choose the best path
forward. Good judgment
is grounded – in all three
domains and throughout
the process – in four types
of knowledge: self, social
network, organizational,
and contextual.
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STRATEGY
CRISIS
Self
How do you learn?
Do you face reality?
Do you watch and listen?
Are you willing
to improve?
Personal judgments
about your ambitions,
role, and capabilities
Personal judgments
regarding your career
and life strategy
Personal judgments
made during times of
crisis and introspection
Social Network
Do you know how to
build a strong team?
How do you learn from
team members? How do
you teach them to make
better judgments?
Judgments about who is
on and off your team
Judgments about how
your team evolves to
meet business demands
Judgments about how
and with whom your
team operates during
a crisis
Organizational
Do you know how to
draw on the strengths
of others throughout
the organization? Can
you create broad-scale
processes by teaching
people to make smart
judgments?
Judgments about organizational systems for
ensuring the quality and
capability of people in
the organization
Judgments about how
to engage and align all
organizational levels in
strategy execution
Judgments about how
to work with the organization through times
of crisis
Contextual
Do you know how to
create smart interactions among myriad
stakeholders, such as
customers, suppliers,
government, stockholders, competitors, and
interest groups?
Judgments about
which stakeholders
are important and how
to engage them
Judgments about
engaging stakeholders
to frame, define, and
execute strategy
Judgments about how
stakeholders both inside
and outside the organization connect to resolve
crises
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a reputation for brand building and effective marketing.
Lafley felt sure of his call, but he had
skipped a vital part of the preparation
phase: mobilizing and aligning the team.
Henretta hadn’t been in the candidate
pool. Lafley hadn’t sought his team’s
advice, and the reaction to Henretta’s
appointment amounted to, as he said,
“almost a revolt.” Wisely, Lafley took advantage of the redo loop. He invited his
top team to a meeting at which each
member had a chance to make a case for
a candidate other than Henretta. He took
the input seriously, but he still believed
he’d made the right choice, and he explained his reasoning – solidly grounded
in his story line, which he had drummed
into team members’ heads. The outcome
may not have satisfied all of them, but
Lafley had neutralized their resistance.
The important thing is that he did not
try to slam-dunk his decision. He set the
stage for success before moving on.
All too often, once leaders have laid
the groundwork and made a call, they
are off to the next decision.
Executing the Call
Execution at its most basic means making the call happen. Once a call is made,
a leader needs to mobilize resources,
people, information, and technology to
support it. When Best Buy CEO Brad
Anderson made the judgment in 2002
that his company needed to be transformed into a customercentric enterprise, he began a process that would take years
of focus and effort. In fact, he didn’t make the final call
until a team of executives had spent a couple of months
exploring potential customer segments – the preparation
phase.
Then, once he had made the call, he mobilized six seniorlevel task forces to spend six months choosing the first segments the company would cultivate. Ultimately, they decided on five, including busy mothers and technology savvy
men. Next came selecting from among task force members
the people who would oversee the segments, choose the
stores to be transformed, and train support functions to execute the new strategy. The initial execution phase played
out over four years.
It also included redo loops, which are ongoing. For example, this year the company is refining its strategy regarding the female segment within the consumer electronics
business – a target of particular interest because 65% of purchases are controlled by women and 90% are significantly
influenced by women. As we write this, Julie Gilbert, a senior
executive at Best Buy who headed up the development of
the profitable high-end male segment, is leading 13,000 of
Best Buy’s female employees in a learn-and-adjust process to
find new ways of capturing the purchasing power of women
while simultaneously developing female employees.
More than 100 teams made up mostly of women participate in workshops and in an online network where they can
share their ideas. One discovery relates to Best Buy’s Geek
Squad, a company that sends technicians to people’s homes
to install hardware and software and offer general technology support. Historically, most of the geeks were men, but
the company realized that because female geeks may see
things differently, female customers may be more comfortable with them and therefore tack on additional projects
once an agent is in their homes. One agent, Kat S., was passionate about explaining to parents the potential dangers
children face on the Internet; she created a brochure and
training to help customers keep their kids safe – a brand-new
service for the company. So far, the numbers show that the
more women on staff both in stores and on the Geek Squad,
the higher the sales.
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often, once leaders have laid the groundwork and made a
call, they are off to the next decision.
•••
We believe we’ve made a start in picking apart the elements
of judgment, but we know it’s just that – a start. Judgment
is a complex phenomenon, too intertwined with luck and
the vicissitudes of history, too influenced by personal style,
to pin down entirely. Sir William Osler, one of the fathers
of modern medicine, said that if all patients were the same,
medicine would be a science, not an art. Something similar
can be said of judgment: If all problems were identical, judgment would be a science, not an art. Even as we entered the
complex territory of judgment, full of curiosity but without
a reliable map, we were reminded that our insights could be
negated in an instant.
Yet our reflection and research have revealed to us two
things for sure. One is that the best leaders get most of
the important calls right. The chronicle of a leader’s judgment calls is the leader’s biography. The other is that, when
it comes to a judgment call, the only thing that counts
is winning or losing. Enthusiasm, good intentions, hard
work – plus a dose of smarts – may help, but what people
remember is the outcome. A good outcome is the product not of a snap of the fingers but of a well-considered
process, reflecting collective wisdom and a commitment
to results.
Reprint R0710E
To order, see page 167.
“You know, if we market it right, this thing could spread like the wheel.”
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John Caldwell
At Yum Brands, which operates a number of fast-food restaurant chains, such as Taco Bell, KFC, and Pizza Hut, CEO
David Novak made a judgment call to appeal to consumers’
desire for choice by combining restaurants in single locations – two stores within a store. The goal was to increase
volume, Novak told us. The high volume at McDonald’s, the
envy of the industry, could largely be attributed to the fact
that it offered seven different types of food. Yum Brands’
restaurants each stood for a single thing. Consumers loved
the idea of choice, but employees balked, because they
prided themselves on the power of their individual brands.
Each unit owned its merchandising, operating mechanisms,
marketing – everything.
Consequently, the strategic judgment initially failed, and
Novak and his team had to pull back and adjust. Novak
admits that his passion for the new strategy may have interfered with execution. He was consumed by the make-ithappen aspect of execution and so neglected the learn-andadjust part of the phase. In retrospect, he told us, he should
have acknowledged the cultural attachment to the individual brands and spent more time listening to and engaging
with employees. Now he is taking the time to learn about
people’s interests and concerns and to adjust his strategy
accordingly. By using redo loops, Novak has been able to
align the members of his leadership team and accelerate the
deployment of the multibranding strategy.
Larry Bossidy, the retired CEO of Honeywell, coauthored
a book on execution in which he observes that thinking does
not matter if nothing happens. It sounds obvious, but all too
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